How a zero credit card balance can impact you

Quick insights

• A zero balance on your credit card means you owe nothing to the credit card company.
• This situation could have various implications on your credit score and financial health.
• The Chase Freedom Rise card offers features that may help you maintain a healthy credit balance.

Understanding a zero balance on your credit card

A zero balance means you have paid off your credit card and don’t owe anything on the account.

Having a zero balance can positively impact your credit score by and credit utilization ratio, a key factor in credit score calculations. However, if a zero balance is due to a long period of inactivity on your account, it may not be as helpful, If a card is inactive for long enough, it’s possible your lender could close your account.

Should you close your credit card if the balance is zero?

Closing a credit card, even one with a zero balance, might negatively impact your credit score by reducing your overall available credit and possibly increasing your credit utilization ratio. There are a number of factors to consider before closing a credit card account, including:

• Credit score: Your credit score impacts many aspects of your financial life, so it’s generally recommended to pay attention to your credit score and work towards maintaining good credit history. There are three main factors that combine to account for approximately 80% of your credit score—payment history, credit utilization and age/type of credit—and the decision to close a credit card impact each of them.
• Payment history: A history of on-time credit card payments is a major factor in determining your credit score. An unused card can still potentially impact your payment history.
• Age of account: One of the most influential factors in determining your credit score is the collective age of your accounts. Every time you close an older credit card account, your average age of accounts could decrease. Keeping a credit card with a zero balance open, especially an older account, might benefit your credit score by increasing the length of your credit history.
• Credit utilization ratio: One of the main factors that determine your credit score is your credit utilization ratio, which is the ratio of your current debt to your total credit limit across all accounts. For example, if you hold $1,000 of credit card debt on a card with a $2,000 credit limit, you can determine this ratio by dividing 1,000 by 2,000; your credit utilization ratio is 50%. However, if you also have an unused card with a $4,000 credit limit and you only use $1,000, this brings your total credit utilization ratio to 25%. It’s recommended to keep your credit utilization ratio at or below 30%, with 20% or lower being ideal.
• Annual fee: One of the biggest determining factors in deciding whether to close a credit card account is an annual fee. If you no longer use your card enough to justify the annual fee, it might make sense to close the account. That said, you can consider speaking with your credit card provider first to see if you can downgrade or upgrade to a card with no annual fee.

How long can you keep a zero balance on a credit card?

There's no limit to how long you can keep a zero balance, but prolonged inactivity may lead the issuer to close the account. To keep your credit card account active, make sure to use it on occasion. Otherwise, you can leave a zero balance on a credit card indefinitely.

Paying off your credit card after every purchase

There are many advantages to keeping a credit card account open and paying off the balance in full after each purchase, including:

• Making frequent payments can lower your credit utilization ratio, which could positively affect your credit score.
• Paying off your credit card in full each month can help you avoid interest charges and demonstrate responsible credit management to lenders.
• Consider setting up automatic payments to help ensure you don’t miss a payment.

Additional tips for managing your credit wisely

While keeping an old credit card account open can have numerous long-term benefits to your credit score, there are several other things you can do to help manage your credit:

• Diversifying your credit mix, which includes having both revolving credit (like credit cards) and installment credit (like loans), can help improve your credit score.
• Building a strong credit history involves making payments on time, keeping your credit utilization low and more.
• Regularly reviewing your credit report could help you spot errors or signs of fraud early.

Bottom line

A zero balance on your credit card can be a double-edged sword, potentially improving your credit score and helping you avoid interest charges, but could also lead to account closure due to long period of inactivity. Understanding these implications can help you manage your credit more effectively. With careful management and responsible usage, a credit card can be a powerful tool for improving your financial health and achieving your financial goals.